M OUN KY T C A I O N R THE ROLE OF GAS IN THE ENERGY TRANSITION I Using data and markets to curb methane emissions N E STIT U T insight brief March 2020 Authors KEY INSIGHTS Cate Hight • Natural gas will play an important but declining role in the energy transition. There is a [email protected] growing consensus that most, if not all, of the gas currently used in buildings and power plants can and must be replaced with readily available clean energy and clean electricity Laura Hutchinson options. The timeline for phasing out gas in the industrial sector remains uncertain, as [email protected] efforts globally work to scale a range of potential alternatives to both coal and gas, the key thermal energy inputs in heavy manufacturing. Raghav Muralidharan [email protected] • As we phase out gas, we have a much higher likelihood of meeting our climate goals if we are also minimizing methane emissions, both intentional and accidental,i from the gas value Taku Ide chain. Methane emissions from oil and gas production, processing, transmission, and ii [email protected] distribution total over 6.7 billion tons CO2e each year, equal to 16 percent of all human- made CO2 emissions. • Investors, regulators, and consumers are applying increasing pressure on the global gas industry to curb its methane emissions and do so quickly. • The current patchwork of voluntary and regulatory actions is failing to drive methane reductions at the scale and speed necessary for climate alignment. • Despite greenhouse gas reduction commitments by several companies, there is a lack of transparency into whether a company’s claimed methane emissions reductions are actually occurring in practice. • Two things are essential to curbing methane emissions from the oil and gas industry: 1. Global adoption of a methane emissions standard for gas that clearly defines the rules industry must comply with during this transition. 2. A trusted source of transparent and accessible data, coupled with creative analytical approaches, that can translate data into methane abatement action by operators, investors, consumers, and regulators. i Methane emissions from natural gas come from two main sources: venting (deliberate emissions as part of operations) and leaks (accidental emissions). There are also methane emissions associated with operating (gas used to power facilities), flaring (burning of waste gas), and end use (gas combustion for end use); however, carbon dioxide comprises the majority of GHG emissions from these sources. ii Carbon dioxide equivalent of methane is calculated using the 20-year global warming potential (GWP) of 84, as articulated in the Intergovernmental Panel on Climate Change’s Fifth Assessment Report (AR5). ROCKY MOUNTAIN INSTITUTE * WWW.RMI.ORG * BASALT, CO * BOULDER, CO * NEW YORK, NY * THE SAN FRANCISCO BAY AREA * WASHINGTON, D.C. * BEIJING, CHINA insight brief THE ROLE OF GAS IN THE ENERGY TRANSITION 02 IIIIIII THE ROLE OF GAS To avoid 1.5 degrees of warming, we need to dramatically reduce global greenhouse gas emissions over the next two to three decades, including reducing CO2 emissions by at least iii 45 percent over the next ten years, and completely eliminating CO2 emissions by 2050. This requires phasing out the vast majority if not all coal, oil, and gas by 2050. Most experts agree that phasing out coal can and should happen first, followed closely by oil and gas. When considering what a global energy system on a 1.5°C pathway will look like by 2050, natural gas will play an important and ever-diminishing role. We have existing and cost-effective technologies like wind, solar, and batteries to replace gas use in the power sector, as well as electric heat pumps to replace gas use in buildings. Scaling these existing technologies will require a concerted effort to overcome the inertia of the status quo. In the industrial sector, alternatives to fossil fuel are not so readily available. There remain a lot of questions about the role of gas, and where it will be key to replacing coal in the near-term. How long gas plays a role in industry will depend in large part on the cost and application of carbon capture, utilization, and storage, as well as the availability of alternatives like green hydrogen and ammonia to displace natural gas entirely. Whether we can avoid exceeding 1.5 degrees of warming depends in part on a willingness to solve the most important problem the gas industry has on its hands today: emissions of the extremely potent greenhouse gas methane, the primary component of natural gas. Gas is often presented as a “clean transition fuel” because it burns more cleanly than coal. Though burning natural gas does indeed emit less carbon dioxide (CO2) and particulate matter than coal to produce the same amount of energy, the “clean” label for gas ignores the methane released into the atmosphere when gas is extracted, moved through pipelines, and distributed into homes and businesses. Worldwide, the oil and gas industry emits 80 million tons of methane pollution each year, equivalent in short-term warming potential to 16 percent of all human-made v CO2 emissions. IIIIIII THE BASICS OF GAS IN THE GLOBAL ENERGY ECONOMY Natural gas is burned to generate electricity, to heat our homes and workplaces, to fuel heavy manufacturing, and to power vehicles. Currently, natural gas supplies 22 percent of the world’s energy.vi In the United States, natural gas comprises an even larger share: 33 percent of all energy produced, and 31 percent of all energy consumed. Gas has an increasingly global reach, with several new gas transmission pipelines under construction around the world, and continued growth in shipping of liquified natural gas (LNG) to countries not connected by pipelines to a gas supply. iii The IPCC Special Report on Global Warming of 1.5°C emissions pathways analysis is limited to projected CO2 emissions reductions under different transition scenarios, and does not consider changes in emissions of other greenhouse gases like methane. iv Green hydrogen is produced using renewable electricity through a process called electrolysis. v In terms of CO2 equivalent, referencing IPCC AR5 statistics with 20-yr GWP. Uses 80 MT of methane from the oil and gas industry, and 75 GT CO2e for all anthropogenic greenhouse gas emissions (which includes CO2, CH4, and N2O). vi According to the IEA, gas was the third-largest energy source in the world after oil and coal, respectively, in 2017 in terms of total primary energy supply (TPES). ROCKY MOUNTAIN INSTITUTE * WWW.RMI.ORG * BASALT, CO * BOULDER, CO * NEW YORK, NY * THE SAN FRANCISCO BAY AREA * WASHINGTON, D.C. * BEIJING, CHINA insight brief THE ROLE OF GAS IN THE ENERGY TRANSITION 03 But natural gas has not always been so ubiquitous in the United States, let alone in the world. Gas’ share of the world’s energy supply has grown by more than 3 percent since 1990, outpacing all other primary energy sources. This growth has largely been driven by gas’ seemingly endless supply and associated low cost today, thanks to new drilling techniques like fracking that enabled the shale gas boom. One of the most notable shifts in global gas use has been in the electricity sector, which is the third-largest consumer of natural gas, after industry and residential use (see Figure 1). In the global electricity sector, gas-fired power plants are slowly but surely replacing coal-fired generation. Between 2005 and 2017, the share of global electricity generation from gas-fired power plants rose by 2.7 percent, while coal plants’ share decreased by 1.5 percent. This trend is even more pronounced in the United States, where gas-fired power plants’ share grew by 13 percent and coal plants’ share dropped by 20 percent in the same timeframe. The decrease in carbon intensity of the global, and certainly the United States’, electricity supply is attributable to this shift from coal to natural gas-fired generation, coupled with a large increase in renewable electricity generation. FIGURE 1 Global natural gas consumption by sectorvii vii Data adapted from IEA total final gas consumption and electricity and heat analyses. Non-energy use is primarily consumption of natural gas for fertilizer production. Heat refers to natural gas used in central heating plants and combined heat and power (CHP) plants. ROCKY MOUNTAIN INSTITUTE * WWW.RMI.ORG * BASALT, CO * BOULDER, CO * NEW YORK, NY * THE SAN FRANCISCO BAY AREA * WASHINGTON, D.C. * BEIJING, CHINA insight brief THE ROLE OF GAS IN THE ENERGY TRANSITION 04 FIGURE 2 United States industrial energy use by sourceviii Note: Includes energy sources used as feedstocks in manufacturing products. Electricity includes purchased electricity and excludes associated electric system energy losses. Renewables are mainly biomass. Source: U.S. Energy Information Administration The United States industrial sector is seeing a similar shift. Natural gas has been the single- largest energy input to industry since 2010, and coal use is rapidly declining (see Figure 2). But the industrial sector is not as easily converted to renewable electricity. Electricity consumption in US industry has made up a consistent 13 to 14 percent of the sector’s energy use since 1985. The share of non-electricity renewable inputs—like biomass and biofuels—has grown over time, but is equivalent to only a quarter of natural gas’ contribution today. Industry is a fundamentally challenging sector to decarbonize, because many manufacturing processes require thermal energy inputs, as well as feedstocks like natural gas, to function. While gas has ready and reliable alternatives for power generation and heating buildings, it will be key to displacing coal in the industrial sector until thermal alternatives that can be made with renewable energy, such as hydrogen and ammonia, are more widely available.